DUBAI, April 11 (Reuters) - Egyptian real estate stocks surged on Wednesday after two big companies in the sector said they might merge, while Saudi Arabia fell sharply after U.S. President Donald Trump threatened imminent military action in Syria.

In Egypt, the stock index gained 1.4 percent as SODIC jumped 5.5 percent to a 10-year closing high and Madinet Nasr for Housing and Development added 7.4 percent to a record high, although both stocks ended well off their intra-day highs.

The companies said they would start preliminary talks on strategic cooperation that might involve a merger or acquisition; EFG Hermes will advise Madinet Nasr.

Other real estate stocks climbed on speculation that a deal could encourage more M&A in the sector; Palm Hills Development gained 3.6 percent and Heliopolis Co for Housing and Development rose 3.0 percent.

Saudi Arabia’s market slid in the final hour, with the index losing 1.9 percent, its biggest drop since October, after Trump tweeted that missiles “will be coming” to Syria.

The Saudi market has in recent years reacted little to events in Syria, but fund managers said it was vulnerable to profit-taking after surging in the weeks before index compiler FTSE Russell decided in late March to upgrade Riyadh to emerging market status.

“We would ascribe today’s sharp sell-off in Saudi Arabia towards the close to the weakness in global markets, post the Trump tweet,” said Vrajesh Bhandari, portfolio manager at Al Mal Capital in Dubai.

“Investors are sitting on recent gains and any negative news flow is to be taken as an opportunity to book some profits. Nevertheless, we expect the market to see buyers at lower levels given the upcoming MSCI announcement,” he added, referring to MSCI’s upcoming decision in June on whether to upgrade Riyadh.

Dubai’s index, which has been trading at two-year lows, closed 1.4 percent higher, led by property and construction stocks. Trading volumes was the highest this week but remained modest.

Emaar Properties, Dubai’s largest property developer, rebounded 4.8 percent. Emaar had reached a level where it became a buying opportunity, said Marie Salem, director of Capital Markets at FFA Dubai; its trailing price-earnings ratio had sunk to about 7 times.

Earlier this year, investors exited United Arab Emirates markets and built positions in Saudi Arabia and Egypt, but now there is a “rotation back to the UAE and more is expected in the next few months,” Bhandari said.

The Abu Dhabi index slipped 0.5 percent as First Abu Dhabi Bank lost 1.6 percent, but Union National Bank rose 2.7 percent after SICO Bahrain upgraded the stock to “buy” from “neutral”, saying it had the cheapest valuation, adjusted for return on equity, in its Gulf Cooperation Council universe, along with a dividend yield of 5.6 percent.